A Contracting Out Agreement is a document signed by a couple that sets out what property they own individually and jointly — it’s usually entered into during the early part of the relationship.
Under the Property (Relationship) Act 1976 (“the Act”), property owned by a couple – which includes all assets and liabilities — is viewed as belonging to them equally after they have been in a relationship for more than three years. If there has been no formal recognition of the commencement of the relationship, it’s largely up to the couple to decide when their de facto relationship began.
The primary purpose couples enter into a Contracting Out Agreement is so if their relationship ends, it’s clear which assets and liabilities belong to each of them and what they will walk away with at the end of the relationship.
Couples include married couples, those in a civil union, same sex couples and de facto couples.
We have found in recent years more couples are entering into Contracting Out Agreements, particularly couples that are purchasing their first home where they are each contributing different amounts to the purchase price.
Many first-time buyers will use their KiwiSaver towards the purchase price and some of these amounts are significant. It has also become increasingly common for parents to help their children with funds towards the purchase of their first home. In a Contracting Out Agreement, each party’s contribution can be specifically recorded so that in the event their relationship ends and the home is sold, each party will be guaranteed they’ll receive the amount they contributed towards the original purchase price from their KiwiSaver or from funds advanced by parents. (Parents may be more willing to advance funds to their child if they are assured those funds will be returned to their child if the relationship ends.)
A Contracting Out Agreement does not disadvantage the couple from being able to jointly borrow bank funds or to split any increase in value in the property equally between them; it just ensures they each get back what they initially put into the purchase. A Contracting Out Agreement will also cover other assets and liabilities the couple have or may acquire in the future and how they are to be dealt with if they separate.
If you are looking to purchase your first home with your partner or you are a parent considering giving your child money to help them purchase a property with their partner, we suggest you contact us so that we can put in place documentation such as a Contracting Out Agreement to protect the contribution.
